Nissan has been betrayed by Brexit ideologues

There's something tragically appropriate about the fact that the most high-profile British industrial story, as the country staggers in the direction of a no-deal Brexit, should involve Nissan.

The proximate cause of the Japanese company's reversal of its decision to build a line of SUVs at its Sunderland plant was the collapse of European demand for diesel vehicles. But as its management has made perfectly clear Britain's departure from the EU was a factor too.

It's worth recalling why Nissan is here in the UK at all. In the 1980s Margaret Thatcher practically begged the Japanese firm to establish a plant in Sunderland, promising a smorgasbord of public subsidies and support to make it happen. Such interventionism jars with the popular image of her administration as a callous band of laissez-faire ideologues obsessed with the City of London and happy to let former northern industrial powerhouses crumble.

Yet the biggest lure for the Japanese was not those subsidies, but the UK's position in the European common market. As Keith Joseph, Thatcher's industry minister, wrote in a memo to Thatcher: "Nissan had chosen the United Kingdom because it gave them access to the whole European market. If we were outside the community, it is very unlikely that Nissan would have given the United Kingdom serious consideration as a base for this substantial investment."

Another irony about the Nissan investment is that France and Germany were, in those days, hostile to the idea of allowing Japanese car firms a production bridgehead within the European common market, fearing the impact of the competition on their own domestic automotive manufacturers.

Thatcher overcame those protectionist European impulses and indeed made the creation of a free market, regulation-harmonising, "single market" among the European member states a personal priority. Yet now, 33 years on, we have nominal Tory Thatcherites not only insisting that the UK must leave Thatcher's single market but also airily dismissing the Brexit concerns of Nissan's Japanese management - a management which their heroine was once so keen to court.

The suggestion by the chair of the European Research Group faction within the Tory party, Jacob Rees-Mogg, that because Nissan's former boss Carlos Ghosn stands accused of embezzlement in Tokyo that nothing the company has to say need be taken seriously, shows how far this wing of Conservatism has drifted into denial. The ERG prefers conspiracy theories and witch hunts to listening to firms' worries about trade barriers. Before the private "letter of comfort" to Nissan from the business secretary Greg Clark in 2016 was finally published on Monday, the great fear among these hardliners was that this letter had made unacceptably positive noises about Britain remaining in a customs union with the EU.

Another lip-chewing irony over Nissan is that the Labour leader Jeremy Corbyn has been fretting recently about the restrictiveness of EU aid rules and some of his supporters have gone as far as using this as an argument in favour of total rupture. But the Clark letter revealed £ 80m of promises of UK government assistance for Nissan, with £ 61m of grants formally offered. If such state aid is forbidden under "neoliberal" EU law, as some "Lexiteers" seem to suggest, the EU's institutions and courts have been surprisingly tolerant of it.

The air is thick with accusations of "betrayal" over Brexit. But the reality is that it is Nissan and other foreign corporate investors in the UK that have been betrayed; betrayed by political extremists ignorant of history and by those who find their ideology preferable to reality.

When it comes to taxing the wealthy, heed the economists not the billionaires

Money doesn't talk, it swears, sang Bob Dylan. And liberal billionaires in the US are certainly not being polite about the latest policy ideas emanating from America's Democratic Party.

Howard Schultz, the billionaire founder of the Starbucks coffee chain who is considering running for president in 2020, last week condemned universal healthcare and higher rates of income tax on the superrich, as proposed by the new Democratic congresswoman Alexandria Ocasio-Cortez, as "un-American".

"It concerns me that so many voices within the Democratic Party are going so far to the left," Schultz lamented. "If I ran as a Democrat, I would have to say things that I know in my heart I do not believe."

Meanwhile Michael Bloomberg, the former mayor of New York and billionaire head of the financial terminal business, also last week warned that a wealth tax, as proposed by Senator Elizabeth Warren, another Democrat presidential hopeful, is potentially unconstitutional and risks turning the US into Venezuela.

The historical solecism of saying that high taxes on the super-rich are unknown in American history has been widely noted (the top marginal rate of tax between the 1940s and 1970s was well over 70 per cent).

But just as important is the question of what the impact of such progressive, inequality reducing, changes to US taxation would be now. Would overall growth suffer? Would the pie of prosperity be smaller, as the likes of Schultz and Bloomberg suggest? A new book by three International Monetary Fund economists, Jonathan Ostry, Prakash Loungani and Andrew Berg, attempts to provide some answers to those questions. And their answer is that redistribution, unless it was extreme, would be unlikely to hurt growth and could actually sustain it.

"Inequality undercuts the sustainability of economic growth. More unequal societies tend to experience more fragile growth," said Ostry at the Peterson Institute for International Economics in Washington last week. "There is too much caution about using redistributive fiscal tools in terms of their possible disincentive effects. On the whole, the macro data strongly suggests redistributive policies have done more good than harm ... Going for growth while assuming that inequality takes care of itself seems to us to be a dangerous gamble." In other words, Ocasio-Cortez and Warren are thinking along the right lines (although the devil will be in the detail of any policies) while those anti-redistribution liberal billionaires are essentially wrong.

Two other economists who specialise in tax research - Emmanuel Saez and Gabriel Zucman - advanced a subtly different argument in favour of higher US top tax rates and wealth taxes last month. "An extreme concentration of wealth means an extreme concentration of economic and political power," the pair wrote in The New York Times. "Progressive income taxation cannot solve all our injustices. But if history is any guide, it can help stir the country in the right direction."

The prospect of Schultz running as a well-funded independent candidate, splitting the anti-Trump vote and handing the property magnate the keys to the White House for another four years, seems to illustrate beautifully this argument about the distorting influence of massive wealth on politics.

It's often asserted that mainstream economists are all shills for neoliberal politicians, and ignore issues of inequality. The fact that Ostry, Loungani and Berg are thoroughly mainstream economists and all work at that supposedly neoliberal death star, the IMF, shows what a crude caricature this is. One can say the same of the ideas and arguments of Saez and Zucman, who are both based at the University of California, Berkeley and who have both been published in the most prestigious mainstream economics journals.

The fact is that the thrust of mainstream economic research on inequality and policy development among Democrats are moving in the same direction. And the old road of the anti-redistribution billionaires? Well, it appears to be rapidly ageing.

Blame China, not Trump, for the US shut out of Huawei

A robot called "Tappy" which monotonously jabs away at mobile phone screens does not, let's face it, sound like the most sophisticated of technologies.

So it's possible to feel a degree of sympathy with the Chinese firm Huawei which finds itself accused by the US Justice Department of the theft of this supposedly bleeding-edge bit of intellectual property from T-Mobile. The phrase "trumped-up charges" (in every sense) comes to mind.

Yet, of course, there's a bigger picture here than Tappy and Trump. There are questions that go beyond the agenda of the current occupant of the White House and his rabidly sinophobic advisers. Foremost among them is this: are Chinese firms operating in the west a potential security threat? Specifically, should Huawei be shut out of the construction of new 5G infrastructure due to concerns that the company could build "back doors" into its systems that could then be exploited by the Chinese state for espionage purposes?

 In my 2013 book, Chinese Whispers, I suggested that much of the then suspicion of China's commercial influence abroad was over the top. At that time I argued that it was simply not in the commercial or broad economic interests of the Beijing leadership to use western infrastructure assets, or allow them to be used, for nefarious purposes. In some respects that remains true. It's hard to see why there's such anxiety in the west over the Chinese state buying brands like Weetabix, trying to purchase US oil companies or even investing in nuclear power stations.

Why would the Chinese state, which wants to use Bradwell in Essex to provide a proof-of-concept for a new global nuclear reactor technology export business, interfere with the UK's power supply for political reasons? This would, at a stroke blow up its own multibillion dollar investment.

However, one has to accept that the Chinese political leadership has changed profoundly over the past six years. There has been a clear authoritarian turn under Xi Jinping, who has abolished term limits in place since the death of Mao Zedong. Xi has also launched a severe clampdown on domestic dissent, harnessing the full power of online technology to do so.

The new online "social credit system" is somewhat overhyped as a dystopian authoritarian tool, yet it could become one.

Meanwhile there have been countless assertions of party control over nominally private sector firms. Xi came to power promising to let the market take a more "decisive" role; but he has presided over a resurgence of the party-state. The giant Chinese internet and e-commerce companies - Alibaba, Tencent, Baidu, JD. com - have found themselves much more closely regulated.

Once it was just about possible to believe the assurances of Huawei's founder Ren Zhengfei that it had experienced no state influence whatsoever and would not permit it. But no longer. And Xi's conduct is to blame for that.

Alibaba's Jack Ma was "outed" as a member of the Communist Party last year in state media. Members are required to show loyalty to the party above all else. Ma has also announced that he will step down by the end of this year and some informed observers suspect government influence in that decision.

In this context of surging digital authoritarianism and growing private sector subordination it is, sadly, prudent to keep private Chinese firms at arm's length. The UK should follow the lead of the US and prevent Huawei from providing its mobile phone infrastructure.

This is unfortunate for Chinese firms and employees. Huawei is a genuine world leader in its field. And it is precisely the kind of globally competitive technology firm that China needs to prosper if it is to see domestic living standards rise over the coming century.

Perhaps the one, small, positive is that the shut out of Huawei from the west underlines the true nature of China's crisis: that the country's authoritarian leadership is now obstructing the country's economic development.

We’ve been pushed and pulled around on pensions – and what we need now is decent advice

The "pushmi-pullyu" in the 1967 film of Doctor Dolittle was a double-headed llama, with one head facing forward and the other back. Pensions policy in the UK in recent years has borne a resemblance to this contradictory animal.

In 2012 the government introduced a "nudge" to encourage people to save for their retirement. Rather than relying on workers to sign up to occupational pension schemes, the legal default became that everyone gets enrolled unless they deliberately opt out.

And all companies, above a certain size, also had to offer a scheme. The result has been a surge in retirement saving, with the number of active pension scheme members up from 8 million in 2012 to 15 million in 2017.

Some criticised it as intrusive paternalism and a red-tape burden on firms. To most, though, what matters is that it worked.

Yet George Osborne introduced a lurch in the opposite direction in 2015.

The former chancellor, out of nowhere, decided that the rules around what people could do with their accumulated pension savings were too restrictive.

"People who have worked hard and saved hard all their lives, and done the right thing, should be trusted with their own finances," declared Osborne.

He gave the over 55s the freedom to cash in their pension pots and to do what they like with the money, scrapping the requirement for them to transform it into an annuity (a contract with an insurance company to give them a guaranteed annual income for life).

But what if they made bad choices? That's up to them, was the government's answer.

"If people do get a Lamborghini, and end up on the state pension, the state is much less concerned about that, and that is their choice," chirped the former Liberal Democrat pensions minister Steve Webb.

From paternalism to libertarianism in just three years. From "push me" to "pull you".

People may not be buying Lamborghinis. And mercifully there's no evidence thus far that people are frittering their money away, although they don't seem to be doing much shopping around before putting their money into investment funds which is rather ominous and some are just keeping their money in low interest rate cash savings accounts.

Yet one thing they certainly aren't doing is buying annuities. At least not in the volumes they used to. The proportion of people who access their pots buying annuities has collapsed from 90 per cent to just 12 per cent.

Why? Well it could be because they want to spend the money on an expensive one-off purchase - such as property - something they couldn't do if they bought an annuity. Perhaps with annuity rates low by historic standards they think they'll get better returns from investing their pension pots in stock market funds.

Yet new research from the Institute for Fiscal Studies published last week, based on survey evidence, suggests a big part of the reason is that people are under-estimating their own likely longevity.

They are choosing cash or shares over annuities because they don't think they will live long enough to get good value from an annuity, even though many would. In simple terms, a great many people seem to be making a financial mistake.

It's clear how this could be storing up problems for the future: those who run out of pension savings in old age will have to fall back on state support, making life more financially uncomfortable for themselves and also imposing a greater fiscal burden on future taxpayers.

One can see how an ideological battle could be joined over this. The libertarians would fetishise "freedom" while the left would argue people need to be protected from themselves.

Yet people are more complex than the terms of such a squabble allows. Yes, we want the freedom to occasionally make mistakes. But we also grasp that sometimes a more complete autonomy can be found within a framework of guidance, even at times compulsion.

There is a tension between freedom and protection - especially when it comes to financial services, where the consequences of decisions often don't materialise for many decades.

Should the great pension liberalisation be reversed? Should we embrace push me, rather than pull you? Whatever the answer to that, one obvious imperative is to start furnishing people with good and accurate evidence on how long they are likely to live for.

Can a dash of socialism be good for capitalism?

If capitalism is defined by the question of who controls capital - the money that makes the world go around - there's one organisation that has perhaps more influence over modern capitalism than any other. That company is BlackRock.

The American-founded investment company has total assets under management of more than $ 6 trillion (£ 4.6 trillion), bigger than any competitor.

BlackRock owns - on behalf of its millions of pension fund investors - a portion of just about every publicly-listed company in the world. And often a sizeable one. It invests in trillions of dollars of debts of global governments and company bonds.

So who runs this leviathan? Well, to some extent it's on auto-pilot. A hefty chunk of these assets are held in tracker funds, which simply passively "track" stock markets. But BlackRock also has hundreds of active fund managers, who select companies for their portfolios based on various criteria.

And what's their ethos? The answer, if you're used to hearing about the endemic short-termism of the world of finance, might surprise you.

Last week Larry Fink, the chief executive and founder of BlackRock, published his annual letter to the chief executives of all the companies around the world in which it invests last week. And Fink's message was: don't put profits first. Put "purpose" first. "Purpose is not the sole pursuit of profits, but the animating force for achieving them," Fink explained. "Profits are in no way inconsistent with purpose - in fact, profits and purpose are inextricably linked."

This corporate purpose, he went on, means investing for the long term, serving a community, developing the talents of a workforce. And so on. BlackRock also says that bosses' pay should not rise faster than that of the firm's workers and has threatened to vote against remuneration committees that agree to excessive awards.

It's enough to make the libertarian epigoni of Milton Friedman, the economist who famously asserted "there is one and only one social responsibility of business - to use its resources and engage in activities designed to increase its profits", choke on their cornflakes.

But purpose is often easier said than delivered in the business world. Sacha Romanovitch was the chief executive of Grant Thornton, the first woman to run a major accountancy firm. She attempted to restructure the company to have a focus on (in her own words, but words that might also have come from Fink) "profits with a purpose". This meant dropping some questionable clients and sharing profits with all staff rather than just top partners. She capped her own pay at 20 times the average in the firm.

It ended badly. Romanovitch was essentially defenestrated by other Grant Thornton partners last autumn.

An anonymous memo of discontent leaked to the media claimed she was following a "socialist agenda".

But is Romanovitch's brand of reform really "socialist"? And even if we call it that, is it really something to fear? Among successful German "Mittelstand" companies - small and medium-sized family manufacturing firms - the kind of practices introduced by Romanovitch have always been normal.

Klaus Fischer, the owner of a firm near Stuttgart that makes wall plugs and car parts, insists that happy workers come above profits. "I've always been driven by the urge to be jointly successful with my employees, not just alone," he told the Financial Times recently.

And there's some evidence from the UK and the US that "shared capitalism" - where firms pay employees, in part, on the basis of performance of the overall enterprise or workplace - is associated with faster productivity growth within the organisation.

We often hear about Jeremy Corbyn's supposedly backward-looking "socialism". And Labour's plan to compel larger firms to distribute a tenth of their equity into special funds for workers has been dismissed in some quarters in those terms.

But it's worth thinking a little harder about what socialism means in the context of 21st-century business and finance. Perhaps a dash of that broader purpose-over-profits ethos is not as antithetical to successful business practice as we're often told. Perhaps it could actually be a benefit. The world's biggest fund manager, for one, seems to think so.

The exaggerated importance of government debt

"Fiscal illusion" sounds like the kind of thing Derren Brown might do to your wallet in front of a packed theatre.

But actually, fiscal illusions are what perturb experts at places such as the Office for Budget Responsibility and the Institute for Fiscal Studies.

They refer to various official statistical artefacts and quirks exploited by ministers, such as the fact that student loans or spending on private finance initiative construction projects don't show up in the national deficit.

But could there be a fiscal illusion to make those look like trivialities? Could the greatest fiscal illusion of all be the idea that reducing elevated levels of public debt should automatically be a priority for governments? Olivier Blanchard is one of the world's most respected macroeconomists and the former chief economist of the International Monetary Fund.

Giving the annual American Economic Association presidential address last week, Blanchard argued something along those lines.

Put simply, his thesis is that if the market interest rate at which a government can borrow is lower than the economy's expected growth rate, there is little social cost from the debt because the government can simply roll its borrowings over when they come due - without having to raise taxes or cut spending and without risking a dangerous debt spiral.

Blanchard noted that the US government can currently borrow for 10 years in financial markets at around 3 per cent a year, but that America's projected nominal GDP growth rate is higher, at around 4 per cent.

The gap is even bigger in the UK, where our own government can borrow for just 1.3 per cent but the expected nominal growth rate is 3.6 per cent.

When one considers the positive impact on growth of higher government deficits in a time of private sector retrenchment (and the negative impact of over-hasty deficit reduction) the Blanchard finding becomes an even more significant result.

"The welfare costs of debt may be small or even altogether absent," he suggests.

These are not entirely novel arguments. Many economists have made the related point in recent years that a government can stabilise its debt pile so long as the deficit as a share of GDP does not exceed the trend GDP growth rate - and that it's not necessary to eliminate borrowing entirely to achieve this, despite what some politicians insist.

But the fact that these points are being advanced from one of the most influential pulpits in the world of academic economics is significant.

It's important to stress what Blanchard is not saying. He isn't arguing government debt levels never matter or that politicians can always happily borrow and spend without limit. Interest rates may rise. Trend GDP growth rates may fall. Borrowing to spend on white elephants is inherently wasteful.

But his analysis suggests that politicians, their advisers and civil servants need to have a much more sophisticated appreciation of the costs and benefits of government borrowing for the welfare of the population. They need a far more nuanced approach to fiscal policy, one that takes into consideration interest rates and the condition of the overall economy.

The issue of public borrowing has shaped American and European politics over the past decade. Their influence in the UK has been especially profound. The coalition government successfully created a grossly misleading narrative that the spike in the deficit in 2009 was due to Labour profligacy (rather than the recession) and that its austerity policies were the only possible remedy.

When the former Labour leader Ed Miliband forgot to mention "the deficit" in a speech before the 2015 general election, he was beaten up by even the non-partisan sections of the media for neglecting what was widely seen as the most important issue of the day.

But if Blanchard's analysis is right, it was a justified omission. The national debt just doesn't matter as much as we're led to believe.

Social housing can be 'homes fit for heroes' once again

David Lloyd George never actually promised "homes fit for heroes" after the First World War.

The Liberal prime minister's pledge was that his coalition government would construct "habitations fit for the heroes who have won the war".

But whether a "habitation" is the same as a "home" the substance was clear: the state, in the form of local authorities, would build new residences on a large scale.

National resources would be ploughed into improving the housing conditions of the working class, who had paid such a fearful price in the military conflagration.

A new ironclad political will came forth, forged in the sacrifices of the Great War.

Shelter's cross-party Social Housing Commission, a century on, urges a similar housing revolution, although one forged not in the fires of war but the flames of the Grenfell Tower disaster.

The report, which has been in the works for a year, argues that the state should commit to constructing three million new social housing units over the next 20 years.

This would not only represent a housebuilding revolution, it would ultimately create a profound shift in the way we live.

The dominant housing trend of the past two decades has been the doubling of the number of households in the private renting sector to 5 million, with the share also doubling to 20 per cent. The commission's supply surge would probably squeeze down the share back down to the 10 per cent last seen in the early 1980s.

The upfront cost would be around £11bn a year according to the commission, around half a per cent of GDP. Yet additional social housing (rather than the more expensive "affordable housing" category invented in recent years) should ultimately reduce the housing benefit bill. And the additional construction activity should boost tax revenues. The consultancy Capital Economics estimates suggest this would cut the average net cost to the taxpayer to around £4bn a year.

This estimate seems broadly plausible. We've had a vivid demonstration in recent years of how housing policy creates feedback in the broader public finances. The coalition slashed grants to housing associations - which build social and affordable housing - after 2010 but this didn't save the taxpayer money in the end.

It merely inflated the housing benefit bill as people were shuffled into the more expensive private rented sector and required higher welfare payments to make their rent, precisely as experts in the sector had warned.

The obstacle may be less the cost of the commission's proposals than the politics.

Margaret Thatcher's Right to Buy revolution of allowing tenants to acquire their council houses at discounted rates is seen in Conservatives circles as one of the party's greatest policies - supposedly spreading wealth and boosting socially mobility - despite the fact that it severely depleted the stock of social housing for future generations. For all the claims of Conservative ministers to have reformed their attitudes to social housing, a surge of construction on this scale would probably feel like a painful repudiation of Thatcherism.

Conservatives have also been opposed to social housing for more practical reasons since, in the reported words of George Osborne and David Cameron, it "just creates Labour voters". Survey evidence backs this instinct up. Social tenants were more likely to vote Labour in each of the past three general elections.

Yet the context here is that the nature of social housing tenants has been shifting. Research by the Resolution Foundation shows 80 per cent of social renters are in the bottom half of the income distribution, up from 60 per cent in the 1960s.

To reactionary sections of the media social housing has become a place where only poor people should live - something that explains the outrage when it emerges that a relatively well-paid MP like Kate Osamor or a trade union boss like the late Bob Crow does so.

From "homes fit for heroes" to "homes fit for zeros". If the stigma around social housing is to be vanquished, this is surely where a major battle needs to be won.

But the electoral logic is shifting. A stark feature of the 2017 general election was the large advantage for Labour not only among social renters but also among the growing ranks of younger and middle-aged private renters. The housing status quo, for the Conservatives, does not look electorally attractive.

A mass expansion of social housing is not the only way to tackle the housing crisis of course. Tenure reform is another. Private tenants in Germany, who make up the majority, have extensive rights and security of tenure and, as a result, are not clamouring for social housing. And rather than making housing cheaper, politicians could focus on ways to boost families' incomes, which have been under heavy pressure for a decade.

Yet a major expansion of UK social housing supply from the current feeble levels - even if they do not reach the volumes urged by the Commission - is plainly warranted. Those sprawling waiting lists for social housing and the explosion of homelessness since 2010 tell the frustrated demand story for this form of heavily subsidised accommodation in themselves.

And if ministers stall on promises of making life more secure for all private tenants - if the vested interests of MPs, a fifth of whom are landlords, contrive to block it - the radicalism of the Shelter Commission will surely start to look increasingly attractive.